You are here

What If Interest Rates Are 1 Point Higher? $1.9 Trillion in Extra Costs

Interest costs are the fastest growing part of the budget, with the Congressional Budget Office (CBO) projecting interest payments will more than triple over the next decade, from $263 billion in 2017 to $915 billion in 2028.

Rising interest costs are the result of both growing levels of debt and rising interest rates. Debt held by the public will nearly double from $15 trillion today to $29 trillion by the end of the decade. Interest rates are also projected to rise, with the rate on 10-year Treasury notes increasing from today's 2.9 percent to stabilize around 3.7 percent over the medium-term, significantly below the historical average.

What would happen if interest rates rise even faster or higher than expected? In January 2017, CBO noted that if interest rates were 1 point higher than projected each year, the cumulative added costs would be $1.6 trillion. Since that time, Congress has added significantly to deficits with tax cuts and spending increases. Now that debt is projected to be higher, rising interest rates would have a larger effect. In March, we had thought the number might climb as high as $2 trillion, but CBO's debt projections were slightly lower than ours.

Based on the latest CBO projections, we now project that if interest rates were 1 point higher than CBO currently projects each year, the amount spent on interest would be $1.9 trillion higher over ten years. Debt as a share of the economy, currently at 77 percent, would rise to 103 percent of GDP by 2028, rather than 96 percent as under current law.